The latest sets of data from the power ministry suggest that the sector has witnessed a smart turnaround, mostly because of the UDAY scheme introduced a few years ago. According to the ministry, the UDAY states have managed to cut their financial losses by a whopping 70%, from Rs 51,480 crore in FY16 to Rs 15,049 crore in FY18. Indeed, the ministry says, states like Andhra Pradesh, Chhattisgarh, Goa, Gujarat, Haryana, Himachal Pradesh, Maharashtra, Rajasthan and Daman & Diu have shown profits in FY18; Uttar Pradesh, Tamil Nadu, Punjab, Karnataka, Madhya Pradesh, Tripura and Manipur showed losses, but these were 50% lower than those in FY16. It is, then, odd that generating companies are unable to service their bank loans on time, and since they are on the verge of default\u2014if not defaulted already\u2014the government is trying to get the central bank to relax its classification norms for NPAs. ALSO READ: Reliance Industries Chairman Mukesh Ambani breaks into global top 10 rich list; check top 3 The reason for the coexistence of a turnaround with stressed gencos is that, with the state governments unwilling to hike electricity tariffs\u2014and the so-called independent electricity regulators don\u2019t think they can order a tariff hike on their own\u2014to take into account actual costs, the turnaround is a false one; indeed, much of the fall in losses is due to the UDAY scheme\u2019s insistence that banks cut their loan rates dramatically, from 12-14% to around 8% by substituting state-government bonds for SEB loans. Around 20,000 MW of the 52,000 MW of stressed projects are due to the fact that, with the SEBs not able to pass on costs, they have just refused to sign power purchase agreements with the gencos. Another tactic is to simply not supply enough power since, with a gap between costs and tariffs, each unit of supply means additional losses; that is why, power minister RK Singh has been pushing for making 24x7 electricity supply mandatory. Loss levels, ATC in jargon, remain very high and, as compared to the target of cutting this to 15% by March 2019, this was around 21% at the end of December 2018; each one percentage point reduction in ATC lowers financial losses by around Rs 4,000 crore, so when ATC losses don\u2019t fall, the only way to keep SEBs solvent is to raise tariffs. ALSO READ: Karachi stock exchange bleeds after IAF strikes down terror camps in Pakistan; here\u2019s how much index tanked With ATC losses not falling fast enough\u2014this involves going after power thieves and special police and courts\u2014and the regulators not able to ensure regular tariff hikes, SEBs have opted for the easier option of not paying their dues. According to the power ministry data, SEB dues were around Rs 14,600 crore for private sector gencos till the end of November 2018 and Rs 21,600 crore for public sector generators like NTPC and DVC till the end of January 2019. It gets worse since there is this fiction called \u2018regulatory assets\u2019. When an independent regulator knows it needs to raise tariffs so as to net, say, Rs 100, but doesn\u2019t want to raise them\u2014due to the state government indicating it will not allow it\u2014it tells the genco to classify Rs 100 as a regulatory asset; the genco will be given interest costs of, say, Rs 8 per year, on this asset till the time tariffs can be raised to cover the Rs 100. While it is obvious regulatory assets, like any IOU, have to be fully paid for within a few years, almost Rs 60,000 crore of fresh regulatory assets were created in FY14-18, taking the total IOUs till date to as much as Rs 1,35,000 crore. Instead of trying to persuade RBI to relax its NPA norms, the government needs to fix the power sector mess.